I would be wary of chasing the stock up here. I have a suspicion the buying is being orchestrated in an attempt to force the $5 call options to go into the money. We saw most of them purchased to open, with no offsetting puts to speak of, and the 250,000 shares represented by the Feb and Mar expirations were bought very inexpensively quite recently (e.g., 30 cents for the Mar5s). This means the options MMs are on the hook with a break even of $5.3, and the way Valence trades, the MM will have a tough time staying properly hedged. Most of those 250k sh are the Mar5s, but 90k are the Febs which expire this Friday and likely will need to be traded right back. (N.B. I do not mention the Junes since they traded at a buck, so the MM has a lot of breathing room before needing to hedge those.)
So the dynamics I see is someone tried to front-run an anticipated lift in the stock by going long very cheap and short-term calls, and now the stock is being lifted close to the strike+premium, and as we get closer the options MM has no recourse but to buy the stock to hedge.
If Valence gets a spike up, and I were a holder, I'd dump all my stock because based on the stated premise, the stock is likely coming right back down. And I wouldn't be alone.
And the 'if' about the lift in the price is truly an 'if,' so I am not interested in being a buyer at these prices. Too many unknowns about where Valence really stands in regards to actual volume production and demand. I will stay on the sidelines unless the stock drops below 4, and then would consider buying for a trade on the next move up.
Good luck trading! Play it tight, either way.
PS for other readers, the link to the CBOE site is:
quote.cboe.com |
